A construction company faces three primary visibility challenges in predicting the timing of job margin: understanding how work backlog translates into margin, determining if a project is behind in dollars, and having forward visibility into how gross margin will end up for the year.

To help businesses overcome these obstacles, S curve forecasting is a powerful tool that provides margin visibility, timing, and control. This article explores the concepts of S curve forecasting, provides real-life examples that illustrate the concepts, and discusses the benefits and features to look for in an S curve solution.

A Powerful Tool for Margin Visibility, Timing & Control

S curves are named as such because monthly project cost and revenue tend to be low (flat) in the early stages of a project, steepen during the middle as costs increase, and flatten again at the end. This flat, steep, flat shape manifests as an “S.”

S curve tools provide the ability to plot a project’s planned cost, revenue, and margin compared to the actual costs/revenue using a monthly or milestone-based schedule format.

More complex, longer duration projects will typically use the milestone format to provide more granularity and better accuracy. S curves provide powerful visualization capabilities, coupled with the ability to make dynamic adjustments to dates, percent complete, and cost/revenue, while seeing the results instantly for better visibility of project timing required to achieve financial performance.

Real-Life Example: The Construction of a Shopping Mall

To better understand the importance of S curve forecasting, let’s consider a real-life example. A construction company has been contracted to build a shopping mall. The project has a budget of $50 million and is expected to take 24 months to complete. The company’s project manager (PM) needs to ensure that the project schedule and budget stay on track. They decide to use S curve forecasting to monitor the project’s progress and make informed decisions based on the data.

S Curve Forecasting in Action

The PM sets up a milestone-based S curve for the shopping mall project, breaking down the project into various phases, such as site preparation, foundation, structural work, and finishing. Each phase is associated with specific costs, revenues, and scheduled completion dates. As the project progresses, the PM uses the S curve to visualize the project’s planned cost, revenue, and margin vs. actuals, allowing them to make necessary adjustments and predict future outcomes.

Integrating S Curve Forecasting With Key Systems

In this example, the construction company integrates its S curve forecasting tool with its accounting and forecasting systems. This integration ensures that labor, material, equipment, and other costs are automatically synchronized with the S curve actuals by month and milestone. Additionally, weekly or monthly PM forecasts can be synced to update projected costs, hours, and units of completion. This integration not only increases accuracy, but it also eliminates the need for costly data reentry.

Complete Visibility of Project Margin Timing

With the S curve forecasting tool in place, the construction company gains complete visibility of the timing over the shopping mall project’s margins. They can easily identify future cash flow constraint points and make data-driven decisions to maintain better project financial control.

Tracking Milestones for Deeper Insight

Milestone-based S curves are more detailed than simple monthly S curves. Breaking down an S curve project cost and revenue into phases (milestone activities) provides a greater degree of accuracy for more complex projects. This helps ensure milestone events are accurately accounted for and billed as cost events happen.

Milestone S Curve Benefits

• Detailed project view provides a better alignment between cost, revenue, and schedule.
• The ability to associate milestone events with the proper billing month.
• Templates can be used to speed up the setup of new S curve milestone schedules.
• The milestone event day/month can automatically populate using project duration days.
• Ability to link to Gantt schedules to populate S curve templates.

Milestone-based S curves offer numerous benefits that can help construction companies better manage their projects. These benefits allow for more precise project management, ultimately leading to improved outcomes and greater profitability.

Better Alignment Between Cost, Revenue & Schedule

By breaking down a project into distinct milestone activities, PMs can more effectively monitor progress and make necessary adjustments. For example, if a construction project has separate milestones for foundation work, framing, and roofing, PMs can identify cost overruns or delays in each phase and take corrective action promptly.

Accurate Billing & Cash Flow Management

Associating milestone events with the proper billing month ensures that invoices accurately reflect the work completed during that period. This helps maintain a healthy cash flow for the business. For instance, if a project milestone, such as completing the foundation, is associated with a specific billing month, the company can invoice the client accordingly and maintain a steady stream of revenue.

Efficient Setup of New S Curve Milestone Schedules

Using templates can significantly speed up the process of setting up new milestone schedules for similar projects. For example, if a construction company frequently builds apartment complexes, it can use a predefined template with common milestones like site preparation, structural work, and finishing to quickly create a new project schedule.

Automatic Population of Milestone Event Days & Months

By autopopulating milestone event days and months based on the project’s overall duration, PMs can save time. For instance, if a project is scheduled to take 12 months and has evenly distributed milestones, then the system can automatically calculate the expected completion dates for each milestone. If the project end date is changed, then the remaining period S curve milestone amounts and completion dates are recalculated and prorated over additional time.

Seamless Integration With Gantt Schedules

The ability to link milestone-based S curves to Gantt schedules allows PMs to visualize the project’s overall timeline alongside its financial performance. This integration can help identify bottlenecks, potential delays, and areas where resources may need to be reallocated.